News

The lettings fee battle rages on

By Hannah Wilde, 10 April 2017

In the first Spring Budget of his term as Chancellor of the Exchequer under Theresa May’s Government, Philip Hammond sent shockwaves through the lettings industry with his vague yet obstinate vow to ban all lettings fees charged by letting agents in the UK. Never before has the Government made clear their intention to target lettings agents in this way, but criticism was rife that this is nothing more than an ill-thought-out strategy to demonstrate willingness to fix what the Government itself called “a broken housing market”.

Details were and still remain hazy as to when this ban will be put into place and how it will be regulated, but suspicions remain that the Government, far from its original good intentions, could in fact be doing more harm than good in their banning of letting agent fees. It is widely thought that the Government’s reasoning for such a gung-ho move is that if tenants are spared from shelling out hundreds of arguably unnecessary pounds at the beginning of a tenancy for administration, referencing and check-in fees, they will have more money to save for a deposit to make that pivotal first step onto the property ladder further down the line.

However, industry experts are vehement in their protestations, adamant that the costs will be passed to tenants anyway, whether directly or indirectly. If tenants are no longer liable for the very operational costs that keep many a letting agent in business, agents will have to recoup their costs from another source—namely landlords. These landlords, given the extra outlay they will be forced to pay out to let their property, will then inevitably seek to recoup these costs in other ways, with the most obvious being charging higher rents to preserve their profits.

Research suggests that as many as 41% (two in five) of UK landlords will pass either a portion or the whole costs to tenants, which could cost tenants anywhere between an extra £103-£275 per year, notwithstanding the growth in the market which is currently seeing annual rental increases of around 4% per year. Therefore, whether charged directly by the lettings agent or by the landlord in the way of increased rental payments, these fees will remain the responsibility of tenants, who will be made to pay either way.

The whole industry has come together to present a barrage of criticism the Government’s decision, with the Association of Residential Letting Agents (ARLA) leading the charge. At their ARLA Conference at the end of March, the company presented research that showed UK lettings agent fees are generally lower than other major economies in the world—using France (€12 per square metre) and the USA (a total on average of $1,404 per month) as prime examples.

Chief Executive of ARLA Property Mark David Cox goes a step further, commenting that for a sector worth around £4bn and employs around 58,000 people nationwide, the banning of lettings fees could be detrimental for the whole lettings industry. “The Government’s Autumn Statement announcement that it plans to ban letting agent fees was the third big blow in as many years for agents, and exacerbates the threat to the Private Rented Sector (PRS), an increasingly important tenure on which millions of people rely. For many tenants, buying a property simply isn’t an option, and they must depend on the PRS to provide security, good standards and fundamentally, a home. Our findings show that landlords are likely to raise rents as a result of the ban on fees”.

Not only is the danger that landlords would simply pass on the costs to tenants a very real one, research also suggests that letting agent fees account for around a fifth of all letting agents’ revenues, meaning that the abolition of such fees could potentially put as many as 4,000 jobs at risk. So whether or not you agree with the landlords’ fees in the first place, the question remains: is it right that tenants be the one to pay for a Government scheme that could hinder rather than help their situation?